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A few clients called me this week to share concerns about a declining housing market and how it would impact their long-term financial planning.

"I need my home equity for retirement", one said.  "What if foreclosures on my neighbors ruin my nest egg."

Our ensuing conversation covers some basic facts about home equity:

• Home equity is an asset -- just like stocks, bonds, or a stamp collection
• Home equity grows or shrinks as a home's value grows or shrinks
• Home equity grows or shrinks at the same rate, regardless of the mortgage payment, rate, or product
• Home equity tends to represent a disproportionate share of a homeowner's net assets

If you are a homeowner worried about your home equity evaporating in a falling housing market, one realistic solution is to separate the equity from the home via a remortgage.  Then, hand the equity to a financial planner who can invest it somewhere safer than real estate.

Money market fund or basic savings accounts often fit the bill.

An astute observer will recognize that equity separation creates a larger mortgage balance and that may result in a higher monthly payment.

Well, some of my clients have an ingenious way to handle that circumstance: they choose to think of the extra monthly expense as "equity insurance" payments.

I like that idea because it makes complete sense to me -- pay a little more each month in order to preserve the value a large chunk of cash.  Brilliant!

Now, there are also two major benefits to extracting equity that usually get overlooked (so I'll point them out):

1. The dollars you put in the bank account earn interest
2. The dollars you put in the bank account are available in a moment's notice for emergencies

These are two huge deals.  Dollars that are still in the form of "equity" not only earn a 0% interest rate, but aren't available for 2-3 weeks because of the time it takes to remortgage a home (if the bank even approves the application).

And this is what my clients and I review.

Right now, the equity separation wildcard is that tightening lending guidelines are reducing the number of families that are eligible to do it.  So, if you feel at-risk with the amount of equity in your home and want to diversify or add safety to your holdings, call your loan officer and your financial planner for ideas and make a plan.

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.